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Retired Atlanta dentist with a specific interest in agency mortgage REITs and leveraged Munis.
  • Is That All There Is? 0 comments
    Jun 29, 2013 2:47 PM

    Is that all there is? Is that all there is? If thats all there is, my friend, then let's keep dancing. . .

    Well, the Taper Tantrum party is over. The broken lamps have been swept up, the spilt beer mopped off the kitchen floor and those mysterious spots adjacent to the toilet have been Lysoled. What a mess.

    The fever seemed to have broken around Monday and this week there was one Bloomberg interview after another with economists and market guys scratching their heads over why the market reacted so badly to Bernanke's comments. China took the brunt of the blame due to their attempt to manage their own short term liquidity problems as well as some obscure invoice currency arbitrage. The general consensus was that this was the Fed's shot across the bow for anyone relying on cheap dollars to wind out of what's been making them money since QE started. The 10 Year rate is going up, guys. Get used to it.

    As far as the Tantrum's impact on mREITs, SA authors who write on AGNC like REIT Analyst and Scott Kennedy point out that the volatility of recent rate changes has cost the mREITs dearly because it's not practical for them to hedge completely against short term rates moves. The reduction in book value the mREITs have suffered will put Q3 dividends at risk but on the bright side the whole sector is selling at historically low discounts to their further reduced book value. I calculated that NLY hit an historic high in regard to it's dividend yield so at some point soon bargain hunters will start buying as soon as the fear/greed equilibrium shifts which is has already started to do.

    REIT Analyst had the Seeking Alpha post of the week when he pointed out that mREIT earnings are far more dependent on how they hedge than on what the net interest margins were. That was news to me as well as others, but I do see his point. The net interest margin is the engine of mREIT earnings, but it's the hedging transmission that determines how fast (or how much money) the car's gonna go.

    Now for some charts!

    Here we see where MORT has finally escaped oversold territory and is timidly beginning an uptrend. The 50 -200 MA lines look to cross in a few days. I have a seat of the pants timing theory where I believe the market has a memory span of about 3 weeks after which, like a child with a toy he's grown bored with, moves on to another meme to gnaw on. Severe events can double that. As soon as the market sobers up the bond market will firm up and traders will move on to some other issue to angst over.

    (click to enlarge)

    Meanwhile, I'm happy to report that STPP has been getting some ink on SA in articles by Tom Lydon and Brad Zigler. I've noticed that trading volume has picked up in STPP and I'm up almost 20% in this in less than 5 weeks. I know there's a pullback ahead and I really want to add more to my position, maybe at 38. Perhaps it doesn't pay to be too cute about another entry point because I fully expect the shares to go to 50 within 18 months.

    (click to enlarge)

    Next week marks the end of Q2, good riddance to bad rubbish. Wall Street will come back to their desks in a different mood, a bit abashed at their boorish behavior and try to tidy up the damage from their month long pout. The damage done to my own kitchen floor is not insubstantial, but I'm confident that it's just a matter of a few quarters before I'm back were I was prior to May's Fed Day.

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